Relative Stand-Alone Price
Is the price that lessor/supplier would charge for a
component separately.
Separate price, not readily available, lessee estimates.
Lease of multiple assets
Right to use each asset is considered a separate lease if
both are met:
- Lessee can benefit from the use of the asset
either on its own or together
- Asses is neither highly dependent on, nor highly
interrelated with other assets in the contract
*if criteria not met, right to use multiple assets is
considered a single lease component.
Non-lease components
Is considered a separate element if it transfers
goods and services to the lessee
Examples:
1. Maintenance
2. Security Services
3. Supply of utilities
4. Supply of goods
5. Supply of operational services
*accounted for under other applicable standards
Payments for activities/costs that do not transfer
goods or services to the lessee are not a separate
component.
Examples:
1. Administrative tasks
2. Real property taxes, which lessor is liable
regardless whether it has leased the property
3. Insurance costs that protects lessor’s investment
Practical Expedient
PFRS 16 allows an entity to elect, by class of asset, not
to separate lease and non-lease components in contract,
instead account for them as a single lease component.
Simplifies accounting, but will increase amounts
recognized for the LL and RUA, can have implications for
impairment.
Lessee may elect to recognize lease payments as
expense on straight line basis if lease is:
- Short-term
- Of Low Value
In-substance fixed lease payments
Payments that are variable in legal form, but, in
substance, are unavoidable.
Examples:
1. Payments that must be made only if an asset is
proven to be capable of operating during the
lease.
2. Payments that are initially variable but for which
the variability will be resolved in the future.
3. Arrangements in which there is more than one
set of payments that a lessee could make, but
only one payment is realistic (lease payments
are realistic payments).
Lease Incentives
Payments made by the lessor to a lessee associated with
a lease, or reimbursement or assumption by a lessor of
costs of a lessee.
Variable Lease Payments
Portion of payments made by a lessee to a lessor for the
right to use an asset during the lease term that varies
occurring after the commencement date.
Accounting
Depends on nature of variability:
Type of Payment -> Initial -> Subsequent
Based on Index/Rate -> include in LL & RUA based on
index/rate at commencement date -> adjust LL & RUA
based on revised index/rate
Others (Sales) -> exclude from LL & RUA -> recognized
as expense
In-substance fixed payments -> treat as fixed lease
payments -> treat as fixed lease payments
Residual Value Guarantee
- Guarantee made to a lessor by a party unrelated
to the lessor that the value of an asset at end of
lease will be at least a specified amount.
Residual value (RV) = estimated amount that an entity
would currently obtain from disposal of an asset.
Lessee includes residual value of an asset in lease
payments if the residual value is guaranteed.
RV is guaranteed if:
- Guaranteed by lessee
- Guaranteed by a party related to the lessee
When lessee accounts for RV, asset will revert back to
the lessor at end of lease term.
If not revert back, RV is not guaranteed.
Purchase Option
Exercise purchase opt, included in lease payments if
reasonably certain.
*it’s not short-term lease if exercise purchase opt.
Initial Direct Costs (IDC)
- Incremental costs of obtaining a lease that
would not have been incurred if the lease had
not been obtained.
Lessee capitalizes IDC:
General Recognition
- Treat as part of cost of RUA and include in
depreciation
Recognition Exemption
- Treat as prepaid rent, recognize as expense
under straight-line basis.
Lease payments made to lessor at or before
commencement date
Examples:
Advance Rent
General Recognition:
Arises when rentals are payable at
beginning of each period.
Excluded from initial measurement of
LL, included in RUA
Recognition Exemption:
Treated as prepaid rent, recognized as
expense under straight-line basis
Lease Bonus
General Recognition:
An additional payment made by a lessee
to a lessor. Opposite of Lease Incentive.
Excluded in LL, included in RUA
Recognition Exemption:
Treated as prepaid rent, recognized as
expense under straight-line basis
Security Deposits
Intended to compensate for any damages caused to the
leased property.
If no damage to leased property, lessor returns the
security deposit to lessee at end of lease term.
Accounting: lessee as receivable measured at amortized
cost.
*does not affect lessee’s LL and RUA.
*deposits to be applied as rental payment are not
security deposits, but rather advance rent.
Reassessment of LL
Lessee remeasures LL if there are subsequent changes
to the lease payments.
But if carrying amount of RUA is reduced to zero, and
there’s further reduction, excess adjustment is charged
to P/L.
LL is remeasured by discounting the revised lease
payments using a:
Revised Discount Rate if there is a
a. Change in the lease term
Revised lease payments are determined based on
the revised lease term
*no adjustment is made on the existing LL & RUA from
the original contract.
Not a Separate Lease
Accounted for as remeasurement of existing LL & RUA.
Remeasuring the revised lease payments using revised
discount rate.
 For lease modifications that decrease scope of
lease, carrying amount of RUA is decreased to
reflect partial or full termination of lease.
Gain/loss is recognized in P/L
 Other lease modifications, corresponding
adjustment to the RUA is made.
Leasehold improvements
Recognized as asset, separate from RUA, and
depreciated over the shorter of the life of improvements
and remaining lease term.
Presentation
Statement of Financial Position
RUAs are presented either:
a. Separately from other assets
b. Together with other assets with disclosure of the
line items that include the RUAs
RUAs that meet the definition of investment property are
presented as investment property.
LLs are presented either:
a. Separately from other liabilities
b. Together with other liabilities with disclosure of
the line items that include the LLs
Statement of P/L & OCI
Depreciation and Interest expense are presented
separately (offsetting isn’t allowed). Interest expense on
LL is a component of finance costs.

b. Change in assessment of a purchase option

Revised lease payments shall reflect the change in

the amount payable under the purchase opt.

Unchanged Discount Rate if there is a

a. Change in the residual value guarantee

Revised lease payments shall reflect the change in

the amount expected to be payable under the
residual value guarantee

b. Change in the future lease payments resulting

from a change in an index/rate used to
determine those payments

Revised lease payments shall reflect the change in

the contractual cashflows

Lease Modifications

- Change in the scope/consideration of the lease

that was not part of the original terms and
conditions of the lease.
- Depending on its nature, can be accounted for
as:
o Separate lease
o Remeasurement of the existing LL and
RUA

Separate Lease (SL)

Accounted as SL if both scope and consideration in the

lease are increased due to addition of a right to use one
or more assets and increase in consideration reflects
stand-alone price for increase in the scope.